Over the last few years, India had been taxiing along the path of economic recovery as structural and institutional enablers were getting resurrected at every checkpoint along the way. Although these vital reforms did not result in immediately attaining escape velocity, they nevertheless helped in creating a robust and sustainable economic framework while rebooting investor perceptions of India.
Despite the transient adverse revenue pressures from GST implementation earlier in the year, the finance minister refrained from succumbing to the temptation of the complete utilisation of the escape clause (that is, additional fiscal room of 0.5 per cent of GDP in case of structural measures) provided by the Fiscal Responsibility and Budget Management (FRBM) Committee. By maintaining the FY18 fiscal deficit at unchanged levels vis-à-vis FY17, the finance minister ensured minimal slippage as the government skillfully harnessed the disinvestment tool, with revenues under this stream touching an all-time high of Rs 1 lakh crore.
Going into FY18-19, the ethos of fiscal consolidation has been preserved with the government targeting a fiscal deficit of 3.3 per cent. More importantly, the government has accepted key recommendations of the FRBM Committee relating to targeting the fiscal deficit to 3 per cent of GDP by FY21 and by adopting the debt rule and bringing down the debt/GDP ratio to 40 per cent by FY25
The process of fiscal consolidation will be buttressed by the capping of subsidy expenditure at a nine-year low of 1.6 per cent of GDP despite an increase in global commodity prices. The primary deficit continues to consolidate with a budgeted target of 0.3 per, the lowest in 11 years. Further consolidation as per the FRBM framework could soon eliminate the primary deficit. Although the quality of the fiscal deficit suffered in FY17-18 on account of unavoidable revenue pressures, the budget has maintained capital spending at 1.6 per cent of GDP even though it seeks to reduce revenue spending by 20 bps to 11.4 per cent.
The budget has allocated a record Rs 5.97 lakh crore for infrastructure. The policy thrust on BRAHMA (Banking and Finance, Rural, Affordable Housing and MSME-led Acceleration) is likely to spawn a healthy microcosm of backward and forward linkages, and ensure that the ensuing pickup in economic activity is broad-based and inclusive.
In banking and finance, an increase in institutional agricultural credit, expansion of MUDRA and Jan Dhan schemes, and the mandatory tapping of the corporate bond route for corporate-sector financing are likely to be positive for the sector. For rural India, the conceptualisation of Operation Greens, focus on horticulture and animal husbandry, the recalibration of MSPs to 1.5x of the cost of production are likely to create livelihood opportunities in both the farm and non-farm rural sectors. To fulfil the target of “housing for all” by 2022, more than one crore houses will be built by 2019 in rural areas along with the creation of a dedicated affordable housing fund. The expansion of the lower corporate tax rate to companies with a turnover of Rs 250 crore will enable 99 per cent of MSMEs to gain from this tax incentive.
The budget has achieved a policy milestone by creating a panoptic environment for a V-shaped economic recovery. Since this has been achieved within the realm of fiscal rectitude, it is likely to transmit a positive policy signal to all stakeholders in the economy. The combination of fiscal discipline, consumption-investment revival, and the emphasis on transparency will create a virtuous cycle of inclusive and sustainable growth.